The World Bank has released a report that analyses the role of trade in poverty reduction and offers recommendations on how to enable global trade to generate more inclusive benefits. In light of rising protectionism, it highlights the importance of promoting an effective multilateral trading system (MTS) to strengthen a global trade agenda that distributes benefits more broadly and counters economic nationalism.
El report qualified “The distributional impacts of trade: empirical innovations, analytical tools and policy responses” The report notes that “increased international trade has transformed the global economy,” overlapping with a “dramatic” reduction in global poverty. For example, in the period 1990-2017, global poverty fell from 36% to 9% and developing countries’ share of global exports rose from 16% to 30%. However, the report warns that “labor market and consumption gains tend to be concentrated in some regions and categories of workers,” with impacts varying across countries and over time.
According to the publication, many developing countries, particularly in East Asia, have built the infrastructure to support trade, reformed their economic policies to promote it, and steered their youth toward jobs in trade-dependent industries, creating new jobs for them. Countries integrate into global and regional value chains and reduce poverty.
Other nations, however, have struggled to mitigate losses and make the benefits of trade inclusive. While most countries have reduced tariffs, the existence of non-tariff barriers and poor infrastructure (among other impediments) continue to increase costs and make it difficult to distribute the gains from trade in the developing world.
The report analyses the ways in which trade shocks (abrupt rises or falls in trade) affect local consumption and labour markets. It concludes that due to the country-specific nature of the mechanism at play, it is difficult for trade policymakers in developing countries to “predict how changes in trade policy might affect local labour markets and consumer prices.”
To help global trade benefit the poor, the report:
- Provides new data, tools and analysis of countries to promote policymakers' understanding of how trade shocks affect consumers and workers, especially in developing countries.
- Generates new findings through study of cases from Bangladesh, Brazil, Mexico, South Africa and Sri Lanka on how trade has affected poor consumers and workers, taking into account the type and duration of the trade shock, labor market characteristics, transmission channels, location and policy environment.
- Offers a complete set of complementary policies and approaches across the economy to enable trade to help reduce poverty and inequality by minimising distortions and strengthening the functioning of markets, reducing trade costs and accelerating labour market adjustment.
Main findings:
- Labour mobility and linkages between tradable and non-tradable sectors are key to distributing the benefits of trade.
- Without compensating public policies, trade liberalization may perpetuate historical disparities.
- Trade shocks may lead to higher rates of informal employment in the short term, but export benefits create incentives for these workers to re-enter formal employment.
- New data and techniques enable policymakers to design complementary policies to address subnational distributional impacts ahead of a trade shock.
The World Bank concludes: “A deeper understanding of the distributional impacts of trade is essential for designing better policies that distribute the benefits of trade more broadly, making them available to all. Minimizing its negative impact and maximizing its benefits will not only help combat poverty, but also counter economic nationalism.”.
The publication is part of the World Bank's Trade and Development Series, which aims to provide information on the new trade agenda, addressing topics ranging from regional trade agreements and customs reform to agriculture, intellectual property rights (IPR), services and other key issues.
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